LESSON 2: GLOBAL ECONOMY IN SETTING FOR GLOBAL

DEVELOPMENT

The proverb of the three blind men examining an elephant act as a

metaphor for the global economy. Each man touching a different part of
the elephant, leg, trunk and tail, has a very different impression of what is
an elephant. The same is true about the global economy. Countries and
regions are economically very different from each other. Its defining
characteristic is the wide disparities in economic achievement and
consequent standards of living.

The global economy can be defined as each individual country’s economy added together but that
is not the only way to portrait how the world economy works. The 20 th largest economies account for
80% of the world’s economic output and the five biggest economies are big enough to impact the whole
world with their developments. If one of these five economies suffer from a natural disaster or any
event that causes an economic downturn it will have sequels on the global economy due to the
interconnections caused by international trade.

On the other hand, global financial markets are also ruled by the biggest economies since they
possess a big load of resources that can be used to finance other country’s endeavors and projects.
These highly influential countries understand the leverage they possess by having these huge economic
systems and they often employed them to push political agendas.

The global economy refers to  the interconnected worldwide economic activities that take place
between multiple countries. ... It refers to the exchange of goods and services between different
countries, and it has also helped countries to specialize in products which they have a comparative
advantage in.

A global economy is an economic interdependence established between the most influential

countries that drives the worldwide economic environment. It is also the aggregate economic output,
movement and influence of all countries.

HOW GLOBAL ECONOMY WORKS?

The global economy provides linkages between the regions and nations of the world in a system of
economic relationships. These relationships involve the exchange of goods and services, financial flows
across borders, exchanging different nations' currencies, movement of people in search of better
standards of living.

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TOPIC 1: GLOBAL DEVELOPMENT

Borders hamper trade. In its early stages, the political response to globalization consists of
removing borders by increasing country size. In its later stages, however, the political response
to globalization is to remove borders by creating international unions, and this leads to a reduction in
country size.

On the other side, at the early stages of globalisation, the gains from trade are small and the
benefit of creating an economic union does not justify the loss of economies of scope. Thus, a single-
level governance structure is optimal. As globalisation proceeds, localities remove borders by increasing
the size of country for engagements.

Here are some aspects of globalization that are relevant to study as we project for global
development; (1) global economy, (2) global cooperation and (3) global governance.

1. Global Economy

Perhaps, you have wondered, but if not at least by now, why there are currencies that do not
bear their country’s origin, like BTC, XRP, ETH, USDT, BCH, LTC, EOS and other crypto currencies yet we
heard of them and they exist.

A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of

exchange wherein individual coin ownership records are stored in a ledger existing in a form of
computerized database using strong cryptography to secure transaction records, to control the creation
of additional coins, and to verify the transfer of coin ownership. It typically does not exist in physical
form (like paper money) and is typically not issued by a central authority (www. en.wikipedia.org).

The activities of these crypto currencies are global and they are somehow affecting the
economic activity of many countries where it operates. This has something to do with world economy.

Cambridge dictionary defines, Global economy is the  system of industry and trade around the
world that has developed as the result of globalization (= the way in which economies have been
developing to operate together as one system).

The world economy or global economy is the economy of all humans of the world considered as
the international exchange of goods and services.

Other experts of this field define; Global economy is an economic interdependence established
between the most influential countries that drives the worldwide economic environment. It is also the
aggregate economic output, movement and influence of all countries.

Still others defines, global economy, as world-wide economic activity between various countries

that are considered intertwined and thus can affect other countries negatively or positively. 

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 In 2000, a CDP Background paper by United Nations, that contains an intensive presentation
about economic globalization entitled, Economic Globalization: Trends, Risks and Risk Prevention. Let us
have a browse on this.

Economic globalization is refers to the increasing interdependence of world economies as a

result of the growing scale of cross-border trade of commodities and services, flow of international
capital and wide and rapid spread of technologies.

It reflects the continuing expansion and mutual integration of market frontiers, and is an
irreversible trend for the economic development in the whole world at the turn of the millennium. The
rapid growing significance of information in all types of productive activities and marketization are the
two major driving forces for economic globalization.

In other words, the fast globalization of the world’s economies in recent years is largely based
on the rapid development of science and technologies, has resulted from the environment in which
market economic system has been fast spreading throughout the world, and has developed on the basis
of increasing cross-border division of labor that has been penetrating down to the level of production
chains within enterprises of different countries.

The advancement of science and technologies has greatly reduced the cost of transportation
and communication, making economic globalization possible.

For instance, today’s ocean shipping cost is only a half of that in the year 1930, the current
airfreight 1/6, and telecommunication cost 1%. The price level of computers in 1990 was only about
1/125 of that in 1960, and this price level in 1998 reduced again by about 80%. This kind of ‘time and
space compression effect’ of technological advancement greatly reduced the cost of international trade
and investment, thus making it possible to organize and coordinate global production.

Furthermore, Ford’s Lyman car is designed in Germany, its gearing system produced in Korea,
pump in USA, and engine in Australia. It is exactly the technological advancement that has made this
type of global production possible. Moreover the development of the networking-based economy has
given birth to a large group of shadow enterprises, making the concept of national boundaries and
distance for certain economic activities meaningless.

If technological advancement and IT development were assumed as the technological driving

force for economic globalization, then the market-oriented reform carried out throughout the world
should be regarded as the institutional driving force for this trend. Under the framework of GATT and
WTO, many countries have gradually cut down their tariff and non-tariff barriers, more and more
countries open up their current accounts and capital accounts. All of these have greatly stimulated the
development of trade and investment. Moreover the transition of the former centralized planned
economies to market economies has made it truly possible to for the world’s economies to integrate
into a whole.

Multinational corporations (MNCs) have become the main carriers of economic globalization.
They are globally organizing production and allocating resources according to the principle of profit
maximization. And their global expansions are reshaping macroeconomic mechanisms of the operation

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of the world economies. In 1996, there were altogether only more than 44,000 MNCs in the whole
world, which had 280,000 overseas subsidiaries and branch offices. In 1997, the volume of the trade of
only the top 100 MNCs already came up to 1/3 of the world’s total and that between their parent
companies and their subsidiaries took up another 1/3. In the US$ 3,000 billion balance of foreign direct
investment at the end of 1996, MNCs owned over 80%. Furthermore, about 70% of international
technological transfers were conducted among MNCs.

This type of cross-border economic activities within same enterprises has posed a challenge for
the traditional international trade and investment theories. Globalization of the financial sector has
become the most rapidly developing and most influential aspect of economic globalization.

Economic globalization has intensified the competition at the international market among
enterprises from different countries. In order to raise their positions and improve their competitiveness
at the international market, both domestic enterprises and those from other countries have been
resorting to mergers and acquisitions one after another, which has resulted in tides of industrial
restructuring.

Take a few cases just as a demonstration: the most recent acquisition of Mannesmann by
Vodaphone, acquisition of MCI by British Telecom, acquisition of 信 孚 by Deutsche Bank, and the
amalgamation of Citibank with Travelers and that of Daimler-benz. All of these restructuring activities
will exert far-reaching influence on the world’s industrial competition pattern. Developed countries have
been playing a dominant role in the process of economic globalization. International economic and
financial organizations are under the control of the United States and other western countries. They
have been using these advantages to promote and dominate the development of globalization. At the
same time, they are the largest beneficiaries of economic globalization.

In the Philippines, we have the merging of shipping companies, WG & A (William Lines, Gothong
Lines and Aboitiz Shipping Company, the Philippine Airlines (PAL) and the Air Philippines merging, the JC
Summit Holdings with its flagship bearer Cebupacific Air and Universal Robina Food Corporation.

In the nutshell, Global Economy is moving towards the proliferation of goods and services from
one country to another due to the interconnected worldwide economic activities that take place
between multiple countries.

The edge of our participation in the world economy is built on having a better infrastructure in
internet connections, accessibility of the transfer of goods and manpower, geographic peace and order
conditions, among others. Given our present condition, we have a creeping problem, I should say, in
internet service, terrorism and moral ascendency of our leaders in public service (Philhealth, etc.). We
need to address them now to have a better participation in the global economy.

This requisite for an advantageous competition in the global arena is yet to be done in our
country. We look forward to take a greater share in the global market to increase our revenues and
enjoy products and services from our partners worldwide.

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2. Global Cooperation

Global cooperation is the act of all countries working together to accomplish global issues and
missions. The missions and issues of the global cooperation are environment, poverty, war, diseases,
extinct animal so on and so forth.
Global cooperation on anything is a challenge in itself. The disparate interests, intentions, and
abilities of all the world's nations to come together and find a path forward is daunting to even consider.

The importance of global cooperation

In this 21th century, the world is becoming closer and closer. It almost seems like a small
community. International cooperation plays a vital role in tackling global issues. To solve these issues, it
requires a huge amount of supports and efforts from other countries due to the fact that almost all
countries are confronting the same issues.
People not only fight with natural disaster but also fight with poverty. As a result, global
cooperation is really fundamental. I will give you three incidents why global cooperation is extremely
significant (oeungmuyyu, 2015).

Firstly, global cooperation is important because it offers more job opportunities to the people in
the developing countries. Clearly, some Asian countries have abundant human resources;
consequently, global cooperation is able to provide many jobs to the people in the developing
countries by cooperating with developed countries all over the world.

As a result, low-income families are employed and are capable of supporting their
children to go to school. When children could go to school and absorb the knowledge, they have
adequate capacities to enhance their countries better once they grow up.

Secondly, the importance of international cooperation is to fight the diseases. There are a
barrage of illnesses occurring have killed a great deal of people. For instance, there was a
disease called Ebola, which took place in Africa.

A lot of scientists coming from both developed and developing countries collaborate to
do the experiment and find the solution towards this disease. After a long hard work, they were
able to cure this illness. The cooperation saved a lot of people lives. Without global cooperation,
it would have been impossible to discover a cure.

Last but not least, global cooperation is vital because it can improve the lifestyles of farmers in
the provinces by creating fair trade system. Fair trade is also known as international trade which
it can affect to the world economy. Because there are many farmers who don’t get the amount
of money as they deserve, fair trade system is fundamental to help farmers to get extra money.
For example, a coffee farmer who produces the coffee beans receives less than 40% of the
actual price while the coyote gets a huge amount of money by selling the goods to the

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 exporters. Hence, fair trade organizations play a leading role to fight against economic crisis and
transform the lives of farmers.

The fair trade system is to make sure that farmers will get adequate money to support
their family so that they are capable of having decent food to eat, sending their children to
school and going to superb hospital when they are sick.

Global cooperation is very crucial since it will save people lives, provide more jobs and help the
world economy. It is true that when you are alone, you are weak. When you collaborate with others,
your team is strong and is able to cope with all kind of problems on earth. As a saying goes “Untied we
are strong, divided we fall.” Global cooperation allows people to collaborate and achieve the same
goals.

Our recent experience to global cooperation is when the Philippines signify its interest to join in
the medical trials for the COVID-19 vaccine. Our voluntary participation in Sputnik V vaccine from Russia,
Sinovac from China and other laboratories abroad who are right now on their way to develop a vaccine
is a big leap towards global cooperation.

3. Global Governance

Another aspect of globalization is global governance. Global governance or world governance is

a concept building towards political cooperation among transnational actors, aimed at negotiating
responses to problems that affect more than one state or region.

Global governance is necessary because humanity increasingly faces both problems and
opportunities that are global in scale. Today, transnational problems such as violence and pandemics
routinely reach across borders, affecting us all.

Methods of global governance include harmonization of laws among states, international

regimes, global policy issue networks, and hybrid institutions that combine functions of state agencies
and private sector organizations. 

Global governance brings together diverse actors to coordinate collective action at the level of
the planet. The goal of global governance, roughly defined, is to provide global public goods, particularly
peace and security, justice and mediation systems for conflict, functioning markets and unified
standards for trade and industry. One crucial global public good is catastrophic risk management –
putting appropriate mechanisms in place to maximally reduce the likelihood and impact of any event
that could cause the death of 1 billion people across the planet, or damage of equivalent magnitude
(www.globalchallenges.org).

Global governance is more generally effected through a range of organisations acting as

intermediary bodies. Those include bodies in charge of regional coordination, such as the EU or ASEAN,

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which coordinate the policies of their members in a certain geographical zone. Those also include
strategic or economic initiatives under the leadership of one country – NATO for the US or China’s Belt
and Road Initiative for instance – or more generally coordinating defense or economic integration, such
as APEC or ANZUS.

Finally, global governance relies on looser norm-setting forums, such as the G20, the G7, the
World Economic Forum: those do not set up treaties, but offer spaces for gathering, discussing ideas,
aligning policy and setting norms. This last category could be extended to multi-stakeholder institutions
that aim to align global standards, for instance the Internet Engineering Taskforce (IETF) and the World
Wide Web Consortium (W3C).

Global governance is essential but fragmented, complex and little understood. In this context,
the key questions raised by the Global Challenges Foundation are, how to reform institutions, how to
develop alternative institutions, and how to use the new possibilities of technology to improve
governance.

Global governance will increasingly be judged not only by the extent to which it prevents harm,
but also by its demonstrated ability to improve human wellbeing. Progress has let us set our sights
higher as a species, both for what we consider to be the right trajectory for humanity and for our own
conduct.  Major advances in human wellbeing can be accomplished with existing technology and modest
improvements in global coordination.

The leading institution in charge of global governance today is the United Nations. This will be
discussed in a separate chapter.

FOR FURTHER LEARNING:

https://www.investopedia.com/terms/g/globalization.asp

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TOPIC 2: CRYPTOCURRENCY AND THE GLOBAL ECONOMY
More generally speaking, it can be said that cryptocurrency
has had a great impact on the economy, and it could
continue to do so with continued growth. As more and more
countries within the western world legalize cryptocurrency
there could easily be another surge in popularity.

HOW DOES CRYPTOCURRENCY AFFECT THE GLOBAL

ECONOMY?
An added advantage of cryptocurrency is that it's completely decentralized, which means that for
citizens living in countries with currency instability, cryptocurrency allows them to trade freely across
borders with citizens of more well-off countries, creating a level of economic equality.

HOW CRYPTOCURRENCIES CAN HELP GLOBAL ECONOMY AND BUILD A BETTER FUTURE

Cryptocurrencies have long been discussed and debated, but they’re only now coming to light as
financial tools that can be accessible and useful to more than only die-hard connoisseurs.

Cryptocurrencies have the potential to enable social and economic growth throughout the world,
including in developing countries, by offering easier access to capital and financial services.

Cryptocurrencies and Bitcoin in particular have a highly utilitarian, yet also disrupting quality that
has slowly, but steadily started to interfere with the way the traditional financial system works.

1.  A Beneficial Rise in Economic Activities

There is already an entire industry built around cryptocurrencies and it’s held by institutions
dedicated to supervising all the digital coin exchanges taking place throughout the world. The rate at
which the cryptocurrency industry is growing is earth-shattering and this can be confirmed by early
adopters that became rich overnight and found opportunities to grow financially. Bitcoin, the most
famous of these cryptocurrencies, has already permitted many people and companies to develop and
flourish, while many also rely on trading as their source of income. The economy is slowly shifting to
adapt to these needs and cryptocurrencies have a great potential in satisfying them.

2.  Great Opportunities for Poorly Banked Countries

More than a third of the world population does not have access to  basic banking services that can
help them out in case of a personal financial crisis - loans, checking accounts and the list can go on.
These people that in most cases are already financially disadvantaged typically resort to doubtful and
dangerous lending practices. The interest rate of these practices is anything but fair, which consequently

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leads to more instability among the people who requested the loan. This is where cryptocurrencies
come in with their high volatility and ease-of-use.

There are now many apps and programs that facilitate the use of cryptocurrencies and bring them
closer to the wider audience. An added benefit of cryptocurrency use is that it’s completely
decentralized, so trading can be done freely across borders. The use of technology will facilitate a
financial revolution that will leave everyone more financially connected, empowered and enabled.

3.  Low Transaction Costs

Because cryptocurrencies and blockchain don’t need an actual brick-and-mortar building to exist,
the costs associated with their transactioning are minimal. There is no need for employee wages, utility
bills or rent to be paid, so these savings naturally morph into low transaction fees. This in turn
encourages more and more people to trust these new financial tools and start transactioning, allowing
for the global economy to be more closely intertwined. And depending on the broker you choose, you
can even trade with no minimum deposit requirements - as offered by CryptoRocket, for example.

4.  Increased Transparency of Transactions

Since all blockchain and cryptocurrencies transactions are automated and digitized, they are all
tracked in a distributed ledger. The best part about it is that it cannot be manipulated by either people
or companies, which greatly diminishes the risk of fraud and corruption. This means that
underdeveloped countries also have a greater chance of entering the financial transactions game and
boost their own economy and social prospects. What’s more, citizens will be able to keep track of where
state funds will be oriented and will thus have a say within their own political climate.

5.  More Power to Entrepreneurs

There’s never been a more prosperous time to do business than it is now, in the sense that
blockchain technology and cryptocurrencies can help entrepreneurs receive payments in more
currencies. BitPesa is one such company that helps business owners in Africa make financial transactions
with European, American and Asian companies. The aim is to help small and medium business
everywhere get better financial coverage and a liberated financial connection with the rest of the world.
By using BitPesa and TenX’s digital wallet, entrepreneurs are able to quickly convert altcoins into fiat
currencies that they can later redirect to business investments, purchases and payments.

The world is changing and it’s changing quickly. The speed at which cryptocurrencies are taking over
is a clear indicator that traditional financial institutions can no longer hold the fort so well and that other
financial needs are arising and need to be addressed. Similarly, the world is facing a growing need to
tear down borders, in search of a complete social and financial inclusion - this blockchain technology has
everything it needs to address such issues.

It will only be a matter of time until these cryptocurrencies definitively find a way into our lives,
shaping them for the better, with economic growth and inclusion in mind. Millions of people will now

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have the opportunity to invest, send money across borders, save money and start a business thanks to
the amazing possibilities that cryptocurrencies bring to the table.

COVID-19 WILL HAVE GRAVE EFFECTS ON THE GLOBAL ECONOMY

Coronavirus disease 2019 (COVID-19 or coronavirus) was first detected in December 2019 by
health authorities in Wuhan City in the People’s Republic of China. Since that time, more than 118,000
cases have been confirmed worldwide, and the virus has spread to more than 114 countries across 6
continents, causing over 4,200 deaths to date, according to the World Health Organization (WHO).
Spread of the coronavirus is causing a global emergency. It has been characterized as an “epidemic” by
the US Centers for Disease Control and Prevention (CDC) and the WHO has just raised the status to that
of a “pandemic”—an infectious disease that is able to infect people easily and spread from "person to
person in an efficient and sustained way," according to the CDC.

In addition to significant health concerns, the spread of the coronavirus will impact the global
economy. Just-in-time supply chains, many of which originate in China, are particularly vulnerable to
disruption caused by COVID-19. In January 2020, Chinese officials mandated factory shutdowns across
most of the country’s provinces in order to stem transmission of the coronavirus. Despite expectations
of their reopening in early February, many have remained shuttered. These factories make everything
from medicines to car parts to electronics, and their shutdown has interrupted the work routine of
roughly 60 million Chinese workers, according to Dun & Bradstreet.  

Many analyses compare the coronavirus with the 2002-03 SARS epidemic. But this comparison is
misleading as the relative importance of China in the worldwide economy has increased tremendously in
the past 18 years. China has more than doubled its share of trade with the rest of the world in that time,
and many more industries are now heavily dependent on its economy.
As a result, the coronavirus has caused almost every Fortune 1000 company to experience an
interruption of their routine business operations. Across nearly every industry, multinational companies
are confronting the stark reality that business will not go on as usual. Further, economists have warned
that the coronavirus outbreak could cost the global economy an estimated $1.1 trillion in lost income.
Some predict that the epidemic's after-effects will cause the global economy to shrink this quarter—for
the first time since the end of 2008, when a shock to the financial sector caused turmoil for businesses
around the world. 

Many countries plan to implement stimulus packages to mitigate coronavirus impact. On March 3,
2020, the Federal Reserve slashed interest rates by half a percentage point; the first unscheduled,
emergency rate cut since 2008, and the largest one-time cut since then. The International Monetary
Fund has announced it will provide additional support to poorer countries by way of grants and debt
relief. But such efforts cannot save certain businesses and industries from the substantial losses that will
inevitably result from a pandemic.

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 Specifically, experts expect that technology companies, apparel makers and industrial-equipment
manufacturers, as well as shipping companies, hospitality chains, airlines and the luxury goods sector
will be among those hardest hit by the coronavirus. The economic slowdown could also derail US plans
to increase exports of farm produce, energy and manufactured goods to China, delaying any real
recovery in the distressed farm and rust belts and other areas of the US economy that rely on the US-
China trade relationship. Below is an overview of those industries we expect will be hardest hit by the
coronavirus outbreak.  

ECLAC’s Executive Secretary, Alicia Bárcena, warned that the region’s economies will suffer the
pandemic’s negative consequences via numerous channels.

The Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC),
Alicia Bárcena, warned today that the Coronavirus (COVID-19) pandemic will have devastating effects on
the global economy that will certainly be more intense than and distinct from those felt during the 2008-
2009 global financial crisis, adding that Latin American and Caribbean countries will not be spared since
they will be affected through numerous channels.

The senior United Nations official participated this Thursday, March 19, in an  Inter-American
Dialogue Conference Call on the Coronavirus and its Consequences for Latin American & Caribbean
Economies, moderated by Michael Shifter, president of that institution headquartered in Washington,
D.C. The other speaker on the call was Santiago Levy, a senior economist from the Brookings Institution.

According to Alicia Bárcena, the COVID-19 crisis will go down in history as one of the worst the world
has endured. She explained that this virus endangers an essential global public good, human health, and
it will impact an already weakened global economy, affecting it both from the supply and demand side,
whether through the interruption of production chains – which will severely hurt global trade – or
through the loss of income and profitability due to higher unemployment and greater difficulties to pay
debt service obligations.

COVID-19 is not only a global pandemic and public health crisis; it has also severely affected the
global economy and financial markets. Significant reductions in income, a rise in unemployment, and
disruptions in the transportation, service, and manufacturing industries are among the consequences of
the disease mitigation measures that have been implemented in many countries. It has become clear
that most governments in the world underestimated the risks of rapid COVID-19 spread and were
mostly reactive in their crisis response. As disease outbreaks are not likely to disappear in the near
future, proactive international actions are required to not only save lives but also protect economic
prosperity.

Even if the tide turns quickly and the virus’s spread is curtailed, its impact will likely be long-lasting.
Some entities with thin margins and weak balance sheets will have been driven out of business. Others
may need to consider bankruptcy protection to address liquidity issues, or supply chain or vendor
disruptions.

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 EVALUATION

INSTRUCTION: Discuss the following (100-150 words only)

Submit them at ecoben711@yahoo.com before our next class begins.

A. What is the affect of global economic crisis in your family?

B. Do you believe that the future global economy resides in cryptocurrencies? Why?
C. Draw or create a collage how our country is affected by the economic regression brought about
by the COVID-19 pandemic.

REFERENCES
Aldama, Prince Kennex Reguyal (2018), The Contemporary World, Rex Book Store, Inc, Manila
Ecoben, Wenceslao and Palparan, Alica (2015) Society and Culture with Family Planning, BOOKS Atbp. Publishing
Corp, Mandaluyong City.
Hooper, Deona (2016) The Top Twelve Grand Challenges Facing Society Today
https://swhelper.org/2016/01/14/top-twelve-grand-challenges-facing-society-today/

https://www.freeman-pedia.com/
(https://www.cepal.org/en/pressreleases/covid-19-will-have-grave-effects-global-economy-and-will-impact-
countries-latin/ 18 August2021).
https://www.dentons.com/en/insights/alerts/2020/march/11/covid-19-and-its-impact-on-the-global-economy
Shangquan, Gao, CDP Background Paper No. 1 ST/ESA/2000/CDP/1 2000 Economic Globalization: Trends, Risks and
Risk Prevention

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https://www.un.org/en/development/desa/policy/cdp/cdp_background_papers/bp2000_1.pdf

The importance of global cooperation

https://oeungmuyyu.wordpress.com/2015/05/16/the-importance-of-global-cooperation/
What is Global Governance?
https://globalchallenges.org/global-governance/
https://www.visionofearth.org/social-change/global-governance

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